Fear and Loathing in Las Vegas

No, I am not referring to the work of a drug-crazed journalist. Fear and Loathing in Las Vegas: Evidence from Blackjack Tables is a new NBER working paper by Bruce Ian Carlin and David T. Robinson. Gated version here. The authors use a novel field experiment of real Blackjack play at a Las Vegas table to provide the first evidence of the omission / commission bias from an anticipated regret perspective. As the authors explain,

"The game of Blackjack has two important features that make it ideal for this purpose. First setting aside the issue of card counting, it is easy to categorize optimal play in every conceivable situation and document departures from optimal play in an unambiguous way. This is because there is a well-publicized solution to the game, known as the Basic Strategy, that had been widely accessible to card players since the 1950s. Indeed, many card playing guides offer steps for learning the basic strategy. Second, and more importantly, blackjack players place bets in the fame before they make strategic decisions. Therefore, in all but a few situations, the bet is essentially a sunk cost once play begins, and the optimal strategy is independent of a players level of risk aversion. This fact allows us to identify the role of regret avoidance independent of other behavioral biases, such as risk aversion, status quo bias, or other common explanations."

Their data consists of over 4,300 hands of blackjack played in a Las Vegas casino. The authors make use of an optially-based game management system, Mindplay, that tracks not only all bets and choices made during play, but does so in a non-intrusive manner. Players strategies remain unaffected by the data collection.

The authors find that when players make mistakes, they are four times more likely to do so by failing to act rather than making an unnecessary and suboptimal choice. The omission bias results are robust to other factors such as player's bets, number of other players at the table, and the running count of high and low cards remaining in the deck.

Possibly the more important results indicate that those who followed the basic strategy won 48.1% of the time compared to deviators who won 36.6% of the time. "A total of $123,000 changed hands in during the pilot study. Players that followed the basic strategy won a total of over $60,000, while they lost only about $56,000 following the basic strategy. In contrast, only $3,000 was won, and over $6,000 lost in hands that deviated from the basic strategy. Of these, passive mistakes lost over $2 for every dollar won, while aggressive mistakes lost only about $1.50 for every dollar won. Therefore, passive mistakes are not only more common, they are more costly."

Punch Line: Player's incur substantial losses by playing too conservatively. This bias exists even for large stakes players and becomes more severe after aggressive play.

Lesson: If you are going to play, brush up on Basic Strategy (I like the Blackjack trainer here) before heading to Vegas and stick to it!